20190531final_order_no_34346.pdf

Office of the Secretary
Service Date
May 31,2019
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )CASE NO.IPC-E-19-10
OF IDAHO POWER FOR AUTHORITY TO )
IMPLEMENT FIXED COST ADJUSTMENT )("FCA")RATES FOR ELECTRIC SERVICE )ORDER NO.34346
FROM JUNE 1,2019,THROUGH MAY 31,)
2020 )
On March 15,2019,Idaho Power Company ("Idaho Power"or "Company")filed an
Application requesting authorization to implement Fixed Cost Adjustment ("FCA")rates for
electric service from June 1,2019 through May 31,2020,and for approval of the Company's
corresponding updated Schedule 54.
On April 4,2019,the Commission issued a Notice of Application and Notice of
Modified Procedure establishing a comment deadline of May 7,2019,and a reply comment
deadline of May 14,2019.Order No.34299.The Idaho Conservation League ("ICL")intervened
as a party,and the ICL,Commission Staff,and several members of the public filed written
comments.The Company then filed a reply.
Now,the Commission issues this Order approving the Application.
BACKGROUND
In 2004 the Commission opened an investigation to "assess financial disincentives
inherent in Company-sponsored conservation programs[,]"to "address possible revenue
adjustment when annual energy consumption is both above and below normal[,]"and to provide
the Commission with proposals "that could provide Idaho Power the opportunityto share and
retain benefits gained from efficiencies,especially where efficiencies are derived from innovation
and the use of new technologies[.]"Order No.29558 citing Order No.29505 at 68-69.Following
the investigation,the Commission approved a three year FCA pilot program for the Company's
Residential and Small General Service customers.Order No.30267.The FCA pilotprogram was
implemented in 2007.In 2010,the Commission extended the pilotprogram for an additional two-
year period.Order No.31063.In 2012,the Commission approvedthe Company's application to
make the FCA an ongoing program.Order No.32505.
The FCA is an annual rate adjustment mechanism designed to decouple Idaho Power's
fixed-cost recovery from its volumetric energy sales.Under traditional rate design,a utility
ORDER NO.34346 1
recovers much of its fixed costs through volumetric rates.Fixed costs are a utility's costs to
provide service that do not vary with fluctuations in energy consumption,whereas variable costs,
as their name suggests,vary based on the energy generated and consumed.When a utility's
customers demand less energy,the utility's variable costs decline in proportion to the reduced
demand.However,the utility's fixed costs to meet customer demand stay the same.Therefore,
when fixed costs are recovered throughvolumetric rates,an economic disincentive exists for the
utility to invest in energy efficiency and demand-side management programs,which reduce
customer demand.Because the Company and the Commission have long agreed that promoting
cost-effective demand-side management ("DSM")and energy efficiency is integral to least-cost
electric service,the Commission approvedthe Company's use of the FCA for the Residential and
Small General Service classes.See Order No.30267 at 13-14 (finding DSM is an integral part of
least-cost electric service and approving the FCA as a three year pilotprogram).
The FCA is designed to true-up the difference between the fixed costs the Company
actually recovered through rates each year and the fixed costs authorized for recovery in the
Company's most recent general rate case.The fixed-cost portion of the Company's revenue
requirement is established for each customer class during the Company's most recent general rate
case.The Commission also establishes a fixed-cost per customer ("FCC")and a fixed-cost per
energy ("FCE")as part of the Company's general rate case,which are used in the calculation of
the Company's recoverable fixed costs in subsequent years.The FCA is calculated at the end of
each calendar year after the Company knows how many customers it served during the prior year
and how much energy those customers consumed.The Company then recovers the calculated
FCA balance through rates in effect from June 1 through May 31 of the followingyear.The FCA
provides a customer surcharge when use per customer declines,and a customer credit when use
per customer increases.
THE APPLICATION
The Company states that the FCA deferral account balance for 2018 is $33,522,802.44
for the Residential class and $1,265,473.45 for the Small General Service class,which totals to
$34,788.275.89.This FCA deferral balance is above the $15,606,711 currently collected in
customers'rates.Application at 5.The Company requests updated FCA rates of0.6598 cents per
kilowatt hour ("kWh")for the Residential class and 0.8366 cents-per-kWh for the Small General
Service class,which would cause an annual increase of 3.64%from current billed revenue for the
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affected customer classes.Id.The Company requests the Commission use its discretion to waive
the 3%cap on FCA rate increases.The Company states that a typical Residential customer would
see an increase of approximately $3.49 on their monthly bill if the Company's Application is
approved in full.
COMMENTS
The Commission Staff,ICL,and several members of the public filed written comments
about the Application.The Company then filed a reply.The comments and reply are summarized
below.
A.Commission Staff
Commission Staff recommends the Commission accept the FCA deferral balance of
$34,788,276,waive the 3%cap on annual FCA increases,and approve the requested FCA rates.
Despite its recommendation of approval,Staff reiterates its perennial concern that the FCA
compensates the Company for all decreases in energy sales,regardless of whether those decreases
are due to Company energy efficiencyefforts,or factors over which the Company has little control
such as weather,economic cycles,enhanced buildingcodes and appliance standards,customer fuel
switching or behavioral responses to higher electric bills.Staff notes that,while the justification
for the FCA is to remove the disincentive for the Company to invest in energy efficiencymeasures,
the impacts of the FCA go far beyond its justification.
Staff determined that the energy savings attributable to the Company's Residential and
Small General Service classes,which are subject to the Company's Schedule 54 FCA tariff,
represent less than 10%of the forecasted decrease in the Company's 2019-2020 Residential class
energy consumption forecast.Staff states that most of the energy savings the Company attributes
to energy efficiencyprograms occur in the Company's Large General Service and Large Power
Service classes,which are not subject to the Company's Schedule 54 FCA tariff.
Staff also notes its concern that the FCA is unlikely to produce credits for customers
given recent trends,and that FCA deferral balances will continue to increase if the use-per-
customer continues to decline and customer counts continue to increase.Staff states that the FCA
deferral balance will continue to grow until the FCC and FCE are updated in a general rate case.
B.Idaho Conservation League.
ICL recommends the Commission defer the Company's request "until stakeholders can
address the stale inputs and unresolved inaccuracies in the current mechanism."ICL Comments
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at 1.Like Staff,ICL notes that the Company's FCA used an FCC and FCE that were derived from
the Company's last general rate case in 2011-2012.ICL states,"Due to changes in housing stock,
appliances,and most of all lighting,the consumption per customer today is almost certainlylower
than before,making a key input to the [FCA]quite stale."Id
C.Customers.
Numerous customers filed comments on this matter.Most objected to the disincentive
for customers to reduce their energy consumption.Others objected solely to the proposed increase
m rates.
D.Idaho Power's Reply Comments.
Idaho Power's reply comments emphasize the Company's filing complied with the
methodology approved in Case No.IPC-E-11-19,and affirm the effectiveness of the existing FCA
mechanism.The Company states that the Settlement Stipulation that established the current FCA
methodology specified that concerns about the FCC and FCE should be addressed in a general rate
case when base rates are set.
COMMISSION FINDINGS AND DECISION
The Commission has jurisdiction over this matter under Idaho Code §§61-502 and 61-
503.The Commission is empowered to investigate rates,charges,rules,regulations,practices,
and contracts of public utilities and to determine whether they are just,reasonable,preferential,
discriminatory,or in violation of any provision of law,and to fix the same by order.Idaho Code §§
61-502 and 61-503.
The Commission has reviewed the record,includingthe Application,the comments of
Commission Staff,ICL,the public,and the reply comments of Idaho Power.Based on our review,
we find it reasonable to approve the Application because it complies with the Commission-
approved methodology for calculating the FCA.But as we frequentlyhave expressed in prior
orders,the FCA is designed to encourage cost-effective DSM and energy efficiencyprograms,but
in practice the FCA rewards the Company for all reductions in per customer energy consumption,
whether the reduction results from the Company's efforts or broader trends the Company has no
control over.These limitations in the FCA's design,coupled with trends that are likelyto create
charges rather than rebates for customers in the coming years,cause us concern about whether the
FCA can remain viable as structured.
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We further note that key components of the FCA calculation have not been updated
since the Company's last general rate case in 2011.Since then,much has occurred in the energy
industry and in the Company's service territory to call into question the continued reasonableness
of the numbers established in 2011.However,the Settlement Stipulation we approved in Case
No.IPC-E-11-19 contemplatedchanging FCA inputs,like the FCC and FCE,only during a general
rate case.We also note that,in Case No.IPC-E-18-16,the Company and stakeholders are studying
how the Company recovers fixed costs.That docket will produce a study,which is to be submitted
to the Commission,that will analyze potential methods by which the Company can recover its
fixed costs followingits next general rate case,which will likelyimpact the FCA.We look forward
to addressing these issues after the record is fully developed.
We also find it reasonable to waive the 3%cap on FCA rate increases and approve the
3.64%increase because the rate impact will be mitigated by other Company filings that will take
effect on the same date;namely a decrease to the Power Cost Adjustmentin Case No.IPC-E-19-
16,and a decrease to the Company's Energy Efficiency Rider in Case No.IPC-E-19-06.The 3%
cap was meant to prevent rate increases from being stacked upon each other,which is not a concern
in this case.
ORDER
IT IS HEREBY ORDERED that Idaho Power's Application is granted.The Company
shall have a net deferral balance of positive $34,788.276 for the 2019-2020 period,and FCA rates
equal to 0.6598 cents-per-kWh for the Residential class and 0.8366 cents-per-kWh for the Small
General Service class.The Company's proposed Schedule 54 is approved as filed,with an
effective date of June 1,2019.
THIS IS A FINAL ORDER.Any person interested in this Order may petition for
reconsideration within twenty-one(21)days of the service date of this Order with regard to any
matter decided in this Order.Within seven (7)days after any person has petitioned for
reconsideration,any other person may cross-petition for reconsideration.See Idaho Code §61-
626.
ORDER NO.34346 5
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this
day of May 2019.
PAUL K LLAN ,PRESIDENT
KRIST E RAPER,COM ISSIONER
ERIC ANDERSON,COMMISSIONER
Diane M.Hanian
Commission Secretary
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